Page 482 - Operations Strategy

case study 14 • OperatiOns strategy at galanz 457
exhibit 4 galanz price-cutting cycle

Low labor costs
Low land costs

Attract relocation Fully utilize the
of production line production facilities
to Galanz and resources

Expand the overall
production capacity

Achieve greater
economies of scale

Lower production costs Build more production lines/adopt
more advanced technologies

O er products at
much lower prices

Capture larger
market share

Generate more
revenues

Source: Galanz Enterprises Group Co. Ltd.

ovens ranged from RMB 1,000 to RMB 3,000. Consequently, Galanz decided to cut
prices to gain market share from its competitors. From 1996 to 1998, Galanz cut prices
of all its microwave ovens by 30–40 per cent. Its lowest-priced microwave oven could
be less than RMB 300. It continued to launch price wars between 2000 and 2002 and
finally the company achieved its leading position in both the domestic and global mar-
kets (see Exhibits 3 and 5 for stages of Galanz’s price war).
Galanz’s price-cutting mechanism relied on setting the average unit cost of produc-
tion along its growth curve. That is, when production volume reached two million

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